Small Debt Consolidation Or All My Debt At Once?

When making the decision whether to take out a large debt consolidation loan in order to pay off all of your creditors in one fell swoop, or to take out small loans and pay them off one chunk at a time, there two key factors to consider. First, the current state of your credit report. Second, consider the combined interest rate of your credit cards versus the interest rate on your prospective consolidation loan.

Your Credit Report

Every time you make a payment late, you receive a negative mark on your credit report. If you are unable to pay one of your credit card bills at all, this too will be reported to agencies and your credit score will plummet. Therefore, if you are currently unable to make the minimum payments on your various credit cards, a debt consolidation loan may be the best way to stop the negative course on which your credit score is set. However, if you have no problem making your payments, consolidation may not be a necessary course of action.

Interest Rates

Consolidating your monthly payments to a single disbursement does not automatically mean that you are saving money. Before you choose to work with a debt consolidation agency, you must make sure that they can offer you an interest rate that is below the combined interest that you are currently paying out to your various creditors.

In addition, you will need to factor into consideration any upfront and monthly fees charged by your consolidation agency for services rendered. Be sure that your agency is willing to be completely transparent with you about their charges and do not be afraid to skip over one company in favor of another. Plenty of good consolidation agencies are willing to provide you with an honest service for an honest price.

Once you have fully considered the costs and advantages of consolidation, you can make an educated decision as to whether it is right choice for you in your current financial situation.